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TMI Blog2005 (6) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... limited company obtained financial assistance from the Petitioner to set up an industry to manufacture electronic toys. The said company obtained an import licence as a 100% Export Oriented Unit (EOU). The Petitioner had granted to Respondent No. 3 a term loan of Rs. 134.85 lakh on the security of hypothecation of movable assets including machinery which the said Respondent intended to import. The unit failed and defaulted in repaying the loan, from inception. Consequently, the Petitioner, in exercise of powers under Section 29 of the Act, took over the assets as on 18-4-1998. 6.The aforesaid Respondent had, as an 100% Export Oriented Unit, availed of the benefit of a scheme envisaged by the Department of Customs. The unit was exempt from payment of customs duty on imported machinery subject to the condition that the unit was to carry on manufacture within a bonded area and to export its entire production for a fixed period of ten years. The unit had executed a bond in favour of the Customs Department that if it failed to fulfill the obligations it would be liable to pay the applicable duty and penalty on such imported machinery. The machinery imported by the said Respondent Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan totaling Rs. 140 lakh from the Petitioner and to secure the due repayment had hypothecated imported and other machinery. The said Respondent failed to commence its business and defaulted in repayment of the loan. The Petitioner had therefore taken over the assets of the defaulting Respondent on 19-1-1999. The Petitioner having brought the machinery to sale and Respondent No. 3 having successfully bid for the same, the Customs Department has resisted the sale, this action is under challenge. 11.In Writ Petition No. 37583/2001, the Petitioner had furnished term loans aggregating to Rs. 58.15 lakh to M/s. Sabson Freight Containers Private Limited and to secure the same the said company had executed mortgage and hypothecation deeds in favour of the Petitioner in respect of immovable and movable assets, respectively, of its unit. The said company defaulted and the assets were taken over by the Petitioner. The defaulting company was due Rs. 1.95 crore as on 30-6-1996. It also transpires that the said company had imported capital goods and raw materials worth Rs. 4.24 crore and had availed exemption from customs duty amounting to Rs. 5.92 crore. This was on the condition of exporti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In our judgment the High Court is in error in considering that the rights of the pawnee who had parted with money in favour of the pawnor on the security of the goods can be defeated by the goods being lawfully seized by the Government and the money being made available to other creditors of the pawnor without the claim of the pawnee being fully satisfied. The pawnee has special property and a lien which is not of ordinary nature on the goods and so long as his claim is not satisfied no other creditor of the pawnor has any right to take away the goods or its price. After the goods had been seized by the Government it was bound to pay the amount due to the Plaintiff and the balance could have been made available to satisfy the claim of other creditors of the pawnor. But by a mere act of lawful seizure the Government could not deprive the Plaintiff of the amount which was secured by the pledge of the goods to it. As the act of the Government resulted in deprivation of the amount to which the Plaintiff was entitled it was bound to reimburse the Plaintiff for such amount which the Plaintiff in ordinary course would have realised by sale of the goods pledged with it on the pawnor making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to meet the liability of the previous consumer of the electricity supply to the premises purchased through the Finance Corporation. The Court held that as there is no charge over the property, the liability of the party would have to be determined in terms of the contract between the Electricity Board and the consumer and that the Board could not seek enforcement of contractual liability against a third party and accordingly upheld the contention of the auction purchasers. But, it is now noticed that a Larger Bench of the Supreme Court in the Case of Ahmedabad Electricity Company v. Gujarath Inns Private Limited [(2004) 3 SCC 587], has doubted the correctness of the law laid down in Isha Marbles's case, supra. 18.He has further relied upon a judgment of Andhra Pradesh High Court in Sitani Textiles and Fabrics (P) Ltd. v. Assistant Collector of Customs and Central Excise [1999 (106) E.L.T. 296 (A.P.) = 1998 Company Cases 165], wherein it has been held that in the case of a secured debtor, the rights of a secured creditor prevail over the excise dues of the Excise Department and that the secured creditor will have a preferential claim even against the demand of the Central Exci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith Rule 230(2) of the Central Excise Rules, 1944 which lays down the mode of recovery from assets owned by the predecessor and on his liability being assessed, could be recovered even from the successor and submits that in the case of Macson Marbles Private Limited v. Union of India [2003 (158) E.L.T. 424 (S.C.)], the Supreme Court while considering the question whether any industrial unit if sold in terms of Section 29 of the Act would be a sale made by the owner of the property and whether Rule 230(2) of the erstwhile Central Excise Rules, 1944, would be attracted, held, that when the sale made in favour of the Corporation is deemed to be a sale made by the owner of the property, necessarily Rule 230(2) of the Central Excise Rules would be attracted. The Court also further held that the Act and the Central Excise Act are both special enactments and that unless in the operation of the same any conflict arises, it would not be necessary to examine which of them would prevail as there was no conflict in that particular case. 22.Sri Pape Gowda, would further argue that the borrower of the loans from the Petitioner, had imported machinery as a 100% Export Oriented Unit and had avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... availing the exemption from payment of customs duty in order to answer the first issue framed hereinabove. The particular capital goods which are clearly identified, had been permitted to be imported, while exempting the same from customs duty subject to satisfaction of the condition that the unit which has imported the same shall export all of its production or such percentage of the same as may be prescribed by the Customs Department. On the failure of such condition the goods become liable for customs duty and in terms of proviso now inserted by Act No. 23 of 2004, the successor of such defaulter would be held liable. 25.Therefore, in my opinion, such of those goods which have been imported, as aforesaid, are the only goods in respect of which the Customs Department could claim a priority of recovery of dues and not in respect of other goods over which the Petitioner claims as a secured creditor. Applying the principle laid down in Macson Marbles case, supra, the Petitioner would be liable to meet the customs dues as a successor of the defaulting importer. The first issue is answered accordingly. 26.The proposition that the Act is a special enactment and it prevails over the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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